Posted: 2/21/2017 4:15 PM ET
The U.S. equity markets lost no steam in their return to action following the long holiday weekend, with all the major indexes adding to record highs. Upbeat earnings reports from Dow members Wal-Mart and Home Depot provided some sustenance, as did a much stronger-than-expected read on eurozone business activity, despite an unexpected slowdown in growth for the U.S. manufacturing and services sectors. Meanwhile, Treasury yields and the U.S. dollar tacked on to their respective runs, and crude oil prices also advanced. Gold finished lower.
The Dow Jones Industrial Average (DJIA) increased 119 points (0.6%) to 20,743, the S&P 500 Index added 14 points (0.6%) to 2,365, and the Nasdaq Composite gained 27 points (0.5%) to 5,866. In moderate volume, 877 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.55 to $54.33 per barrel and wholesale gasoline was $0.02 lower at $1.50 per gallon. Elsewhere, the Bloomberg gold spot price declined $2.49 to $1,235.98 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 101.38.
Dow member Wal-Mart Stores Inc. (WMT $71) reported 4Q earnings-per-share (EPS) of $1.22, or $1.30 ex-items, versus the $1.28 FactSet estimate, as revenues increased 1.0% year-over-year (y/y) to $130.9 billion, compared to the projected $131.1 billion. Walmart's U.S. 4Q same-store sales rose 1.8% y/y, above the expected 1.3% gain. Shares were nicely higher.
Dow component Home Depot Inc. (HD $145) posted 4Q EPS of $1.44, above the estimated $1.33, with revenues rising 5.8% y/y to $22.2 billion, compared to the projected $21.8 billion. 4Q same-store sales grew 5.8% y/y, north of the forecasted 3.7% gain. HD issued full-year EPS guidance that came in just shy of estimates, but its sales outlook bested forecasts. Separately, the company raised its quarterly dividend by 29% to $0.89 per share, and authorized a new $15.0 billion share repurchase program. HD gained ground.
Macy's Inc. (M $32) announced 4Q profits of $1.54 per share, $2.02 ex-items, versus the expected $1.95, as revenues decreased 4.0% y/y to $8.5 billion, below the forecasted $8.6 billion. Quarterly same-store sales fell 2.7% y/y, compared to the estimated 2.5% decline. The company issued full-year earnings guidance that topped forecasts and a sales forecast that bracketed estimates. M traded to the upside.
Schwab’s Chief Investment Strategist Liz Ann Sonders offers a look at the earnings front in her latest article, Better Days: Earnings Growth Picks Up Sharply in 2017, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.
Dow component Verizon Communications Inc. (VZ $49) announced an agreement to revise its takeover agreement of Yahoo Inc. (YHOO $46) lower by $350 million to about $4.5 billion. Shares of both companies were modestly higher.
Kraft Heinz Co. (KHC $95) reported that it has withdrawn its $143 billion merger proposal with Unilever NV (UN $45). Shares of KHC fell, while UN was solidly lower.
Shares of Popeyes Louisiana Kitchen Inc. (PLKI $79) rallied after agreeing to be acquired by parent of Burger King, Restaurant Brands International Inc. (QSR $58), for $79.00 per share in cash, or roughly $1.8 billion. QSR was also nicely higher on the news.
Business activity reports show expansion surprisingly slowed
The preliminary Markit U.S. Services PMI Index for February declined to 53.9 from January's reading of 55.6, versus the Bloomberg forecast of an improvement to 55.8. The preliminary Markit U.S. Manufacturing PMI Index for February decreased to 54.3 from January's 55.0 level, and versus forecasts of 55.4. Markit said despite the slowdowns, the service sector is still on pace to register its fastest quarterly growth since the end of 2015, while manufacturing new order growth remained faster than at any other time since March 2015. Readings above 50 for both reports denote expansion in activity.
Treasuries were lower, as the yield on the 2-year note ticked a basis point (bp) higher to 1.20%, while the yields on the 10-year note and the 30-year bond rose 2 bps to 2.43% and 3.04%, respectively. For a look at the bond markets, see Schwab's Director of Income Planning, Rob Williams', CFP, and Senior Research Analyst, Cooper Howard's, CFA, latest article, Short-Term Bonds: Why They Could Outperform As Interest Rates Rise, at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.
Treasury yields have ticked higher and the U.S. dollar continues to rally as of late, while the stock markets remain at all-time highs, bolstered by continued upbeat economic data, March Fed rate hike expectations that remain intact, and lingering optimism of U.S. President Donald Trump's reflationary policy pledges. For a look at the political front, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest article, Washington's Way: Why Trump's Policy Changes Could Take Time, at www.schwab.com/insights.
Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, Simple Indicators In A Complex World, noting that while markets may exhibit increasing volatility, we believe the bull market is being supported by tangible and effective indicators of global growth. For analysis of the indicators see Jeff's article, Five Reasons to Stay Invested Despite Heightened Uncertainty. Read these articles at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop.
Tomorrow, the U.S. economic calendar will be headlined by the release of existing home sales, the largest portion of the housing sales market, projected to rise 1.1% month-over-month (m/m) to an annualized rate of 5.55 million units in January. This will be the first look at existing home sales activity in 2017, after posting the highest level of sales in a decade in 2016. The report will be followed by the afternoon release of the minutes from the Federal Open Market Committee's (FOMC) two-day meeting that concluded on February 1st with an unchanged monetary policy decision. The statement appeared to foster a dovish takeaway by the markets but last week's Congressional testimony by FOMC Chief Janet Yellen suggested a March rate hike was still on the table. Rounding out the docket will be MBA Mortgage Applications.
As noted in the latest Schwab Market Perspective: Not So Fast!, elevated earnings and economic expectations could lead to a pullback or more sideways action but we believe the bull market in U.S. stocks will continue. If economic data continues to surprise on the upside, a March rate hike is likely to be on the table; while there is an additional risk that the Fed may be forced to speed up the tightening process should inflation accelerate from here. Read more at www.schwab.com/marketinsight.
Europe mostly higher following upbeat business activity reports, Asia mixed
European equities finished mostly to the upside, on the heels of a much stronger-than-expected read on eurozone business activity, which helped take attention away from festering political uncertainty in the U.S. and Europe. For further analysis, see Schwab's Jeffrey Kleintop's, CFA, article, President Trump and Global Trade: How Will Campaign Promises Play Out? and Director of International Research, Michelle Gibley's, CFA, article, Europe Votes: Could More Countries Reject the EU? at www.schwab.com/oninternational. Markit's Eurozone Composite PMI Index—a gauge of business activity in both the services and manufacturing sectors—improved to 56.0 in February, from 54.4 in January, and compared to the expected 54.3 reading. A level above 50 denotes expansion and this was the highest level since April 2011, with French services and German manufacturing growth highlighting the report. The euro was lower and the British pound was little changed versus the U.S. dollar, while bond yields in the region moved higher. Oil & gas issues saw some strength as crude oil prices moved higher amid optimism cooperation with OPEC production cuts will continue.
For our latest on international investing analysis, see Schwab's Jeffrey Kleintop's, CFA, articles, The CURE for a calm Market: Four risks for 2017, and 5 Reasons International Stocks May Underperform In 2017. Read these articles at www.schwab.com/oninternational.
Asian stocks finished mixed as investors in the region awaited the U.S. markets to return to action following a long holiday weekend, while grappling with earnings and economic data, along with political uncertainty in the U.S. and Europe. Japanese equities gained ground, with the yen losing ground, while weakness in technology issued pressured markets in Australia. Stocks in India and South Korea advanced, with the latter getting a boost from a report that showed the nation's exports and imports both rose solidly in February. Chinese shares finished mixed, with stocks traded in the mainland seeing gains, while those in Hong Kong fell solidly. Schwab's Director of International Research, Michelle Gibley, CFA, provides some timely analysis of global investing in her articles, Currency Hedging: 5 Things You Need to Know and Emerging Markets: Why They Deserve a Place in Your Portfolio at www.schwab.com/oninternational, and be sure to check out our release, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.
Reports on tomorrow's international economic calendar include the Leading Index and wage data from Australia, CPI from Italy and the Eurozone, Germany's Ifo Business Climate Index, and GDP from the U.K.
Schwab Center for Financial Research - Market Analysis Group
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